Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following "Management's Discussion and Analysis of Financial Condition and
Results of Operations" is provided to assist readers in understanding our
financial performance during the periods presented and significant trends that
may impact our future performance. This discussion should be read in conjunction
with our Financial Statements and the related notes thereto.
OVERVIEW
General-We provide a wide range of services including conceptual design,
technology, engineering, procurement, fabrication, modularization, construction,
commissioning, maintenance, program management and environmental services to
customers in the energy infrastructure market throughout the world, and are a
provider of diversified government services. In conjunction with the Shaw
Acquisition on February 13, 2013, beginning in the first quarter of 2013, our
reporting segments were comprised of our four operating groups: Engineering,
Construction and Maintenance; Fabrication Services; Technology; and
Environmental Solutions (formerly Government Solutions). The three months ended
March 31, 2013 includes the impact of the acquired Shaw operations from the
Acquisition Closing Date, while the three months ended March 31, 2014 includes a
full quarter of associated results (hereafter referred to as the "full quarter
impact of the acquired Shaw operations"). Additionally, revenue and income from
operations of $69,641 and $3,321, respectively, for the three months ended March
31, 2013 for a large EPC project in the U.S. that was previously reported within
our Environmental Solutions operating group has been reclassified to our
Engineering, Construction and Maintenance operating group to conform to its
classification in 2014, reflecting the present management oversight for the
project.
We continue to be broadly diversified across the global energy infrastructure
market. Our geographic diversity is illustrated by approximately 50% of our 2014
revenue coming from projects outside the U.S. and approximately 25% of our
March 31, 2014 backlog being comprised of projects outside the U.S. The
geographic mix of our revenue will evolve consistent with changes in our backlog
mix, as well as shifts in future global energy demand. Our diversity in energy
infrastructure end-markets ranges from upstream activities such as offshore oil
and gas and onshore oil sands projects, to downstream activities such as gas
processing, LNG, refining, and petrochemicals, to fossil and nuclear-based power
plants. Planned investments across the natural gas value chain, including LNG
and petrochemicals, remain strong, and we anticipate additional benefits from
continued investments in U.S. shale gas. Global investments in power, offshore
and petrochemical facilities are expected to continue at robust levels, as are
investments in various types of facilities which require storage structures and
pre-fabricated pipe.
Our long-term contracts are awarded on a competitive bid and negotiated basis
using a range of contracting options, including cost-reimbursable, fixed-price
and hybrid, which has both cost-reimbursable and fixed-price characteristics.
Under cost-reimbursable contracts, we generally perform our services in exchange
for a price that consists of reimbursement of all customer-approved costs and a
profit component, which is typically a fixed rate per hour, an overall fixed fee
or a percentage of total reimbursable costs. Under fixed-price contracts, we
perform our services and execute our projects at an established price. The
timing of our revenue recognition may be impacted by the contracting structure
of our contracts. Cost-reimbursable contracts, and hybrid contracts with a more
significant cost-reimbursable component, generally provide our customers with
greater influence over the timing of when we perform our work, and accordingly,
such contracts often result in less predictability with respect to the timing of
our revenue. Fixed-price contracts, and hybrid contracts with a more significant
fixed-price component, tend to provide us with greater control over project
schedule and the timing of when work is performed and costs are incurred, and
accordingly, when revenue is recognized. Our shorter-term contracts and services
are generally provided on a cost-reimbursable, fixed-price or unit price basis.
Our March 31, 2014 backlog distribution by contracting type is described below
within our operating group discussion.
Backlog for each of our operating groups generally consists of several hundred
contracts, which are being executed globally. These contracts vary in size from
less than one hundred thousand dollars in contract value to several billion
dollars, with varying durations that can exceed five years. The differing types,
sizes, and durations of our contracts, combined with their geographic diversity
and stages of completion, often results in fluctuations in our quarterly
operating group results as a percentage of operating group revenue. In addition,
the relative contribution of each of our operating groups, and selling and
administrative expense fluctuations, will impact our quarterly consolidated
results as a percentage of consolidated revenue. Selling and administrative
expense fluctuations are primarily impacted by our stock-based compensation
costs, which are recognized predominantly in the first quarter of each year due
to the timing of stock awards and the immediate expensing of awards for
participants that are eligible to retire. Although quarterly variability is not
unusual in our business, we are currently not aware of any fundamental change in
our backlog or business that would give rise to future operating results that
would be significantly different from our recent historical norms.
Engineering, Construction and Maintenance-Our Engineering, Construction and
Maintenance operating group provides engineering, procurement, and construction
for major energy infrastructure facilities, as well as comprehensive and
integrated maintenance services.

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Our Engineering, Construction and Maintenance operating group comprised
approximately $25.1 billion (82%) of our consolidated March 31, 2014 backlog.
The Engineering, Construction and Maintenance operating group backlog
composition at March 31, 2014 was approximately 45% power, 35% LNG, 5% refining,
5% gas processing, and 10% oil sands, petrochemical and other end markets. Our
power backlog was primarily concentrated in the U.S., however, we anticipate
that our significant future opportunities will be derived from China and other
regions. Our LNG backlog was primarily concentrated in the Asia Pacific and
North American regions and we anticipate significant opportunities will continue
to be derived from these regions in addition to Africa. The majority of our
refining-related backlog was derived from South America and we anticipate that
our future opportunities will be derived from the Middle East, South America,
Russia, and the Asia Pacific region. Our gas processing projects were primarily
concentrated in the U.S. and the Asia Pacific region, where we anticipate
continued strength. Our oil sands backlog was derived from Canada and we
anticipate opportunities will continue from this region. Our March 31, 2014
backlog distribution for this operating group by contracting type was
approximately 80% fixed-price and hybrid and 20% cost-reimbursable.
Fabrication Services-Our Fabrication Services operating group provides
fabrication of piping systems, process and nuclear modules, and fabrication and
erection of steel plate storage tanks and pressure vessels for the oil and gas,
water and wastewater, mining, mineral processing and power generation
industries.
Our Fabrication Services operating group comprised approximately $3.0 billion
(10%) of our consolidated March 31, 2014 backlog. The Fabrication Services
backlog composition by end market at March 31, 2014 was approximately 30% LNG
(including low temp and cryogenic), 30% petrochemical, 25% power, 5% gas
processing and 10% other end markets. Our March 31, 2014 backlog distribution
for this operating group by contracting type was approximately 95% fixed-price,
hybrid, or unit based, with the remainder being cost-reimbursable.
Technology-Our Technology operating group provides licensed process
technologies, catalysts, specialized equipment and engineered products for use
in petrochemical facilities, oil refineries and gas processing plants and offers
process planning and project development services, and a comprehensive program
of aftermarket support.
Our Technology operating group comprised approximately $839.9 million (3%) of
our consolidated March 31, 2014 backlog and was primarily comprised of
fixed-price contracts. Technology's backlog excludes contracts related to our
50% owned CLG joint venture, which we do not consolidate. CLG income is
recognized as equity earnings and is generated from technology licenses,
engineering services and catalysts, primarily for the refining industry.
Environmental Solutions-Our Environmental Solutions operating group provides
full-scale environmental services for government and private sector customers,
including remediation and restoration of contaminated sites, emergency response,
and disaster recovery and leads large, high-profile programs and projects,
including design-build infrastructure projects, for federal, state and local
governments.
Our Environmental Solutions operating group comprised approximately $1.7 billion
(5%) of our consolidated March 31, 2014 backlog. The composition of the backlog
by end market at March 31, 2014 was approximately 40% remediation and
restoration, 25% EPC, 20% program and project management and 15% environmental
consulting and engineering, and was primarily concentrated in the U.S. Our
March 31, 2014 backlog for this operating group was approximately 60%
fixed-price and 40% cost-reimbursable.

Consolidated Results
New Awards/Backlog-New awards represent the value of new contract commitments
received during a given period and are included in backlog until work is
performed and revenue is recognized, or until cancellation. Our new awards may
vary significantly each reporting period based upon the timing of our major new
contract commitments. New awards were $5.8 billion for the first quarter 2014,
compared with $1.9 billion for the corresponding 2013 period. The increase
compared to the prior year quarter was primarily due to the current period
including our proportionate share of a $6.2 billion LNG export facility award in
the U.S. (approximately $3.1 billion), a structural, mechanical and piping
construction award for an LNG project in the Asia Pacific region (approximately
$625.0 million), and engineering and procurement for a clean fuels project in
the Middle East (approximately $370.0 million), all within our Engineering,
Construction and Maintenance operating group and a pipe fabrication award for a
propane dehydrogenation unit in the U.S. (approximately $100.0 million) within
our Fabrication Services operating group. See Operating Group Results below for
further discussion.
Backlog at March 31, 2014 was approximately $30.7 billion, compared to $27.8
billion at December 31, 2013, with the increase primarily reflecting the impact
of new awards exceeding revenue by $2.9 billion. While currency fluctuations can
cause significant variations in our reported backlog, these fluctuations have
not resulted in significant variances in our backlog for the first quarter 2014,
and generally do not have a significant impact on our operating results.
Certain contracts within our Environmental Solutions and Engineering,
Construction and Maintenance operating groups are dependent upon funding from
the U.S. government where legislatures typically appropriate funds on a
year-by-year basis, while contract performance may take more than one year.
Approximately $800.0 million of our backlog at March 31, 2014 for these
operating groups was for contractual commitments that are subject to future
funding decisions.

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Revenue-Revenue was $2.9 billion for the first quarter 2014, representing a
$676.7 million increase (30%) from the corresponding 2013 period. The increase
was primarily due to increased construction activities on our large cost
reimbursable projects in the Asia Pacific region and Colombia, within our
Engineering, Construction and Maintenance operating group and the full quarter
impact of the acquired Shaw operations. See Operating Group Results below for
further discussion.
Gross Profit-Our gross profit was $301.4 million (10.3% of revenue) for the
first quarter 2014, compared with $246.1 million (10.9% of revenue) for the
corresponding 2013 period. The absolute dollar increase was primarily
attributable to our higher revenue volume. The decrease as a percentage of
revenue was primarily due to the full quarter impact of the acquired Shaw
operations and a temporary underutilization of fabrication capacity within our
Fabrication Services operating group.
Selling and Administrative Expense-Selling and administrative expense was $119.2
million (4.1% of revenue) for the first quarter 2014, compared with $94.0
million (4.2% of revenue) for the corresponding 2013 period. The absolute dollar
increase was primarily attributable to increases in our incentive plan costs
(approximately $7.4 million), the full quarter impact of the acquired Shaw
operations and inflationary increases. Our stock-based compensation costs, which
are predominantly in selling and administrative expense, are higher in the first
quarter of each year, due to the immediate expensing of awards for those
participants that are eligible to retire. First quarter stock-based compensation
expense totaled $43.1 million and $32.5 million for 2014 and 2013, respectively,
or 63% and 50% of estimated annual expense for each of the respective periods.
Intangibles Amortization-Intangibles amortization was $16.2 million for the
first quarter 2014, compared with $9.2 million for the corresponding 2013
period. The increase over the prior year period was primarily due to the full
quarter impact of the acquired Shaw operations.
Equity Earnings-Equity earnings were $4.2 million for the first quarter 2014,
compared with $4.5 million for the corresponding 2013 period.
Acquisition and Integration Related Costs-Integration-related costs were $8.1
million for the first quarter 2014 and primarily related to facility
consolidations, including the associated accrued future lease costs for vacated
facilities and unutilized capacity, personnel relocation and severance-related
costs, and systems integration and other integration-related costs. Acquisition
and integration related costs for the corresponding 2013 period were $61.3
million and primarily included transaction costs, professional fees, and
change-in-control and severance-related costs.
Income from Operations-Income from operations was $162.5 million (5.5% of
revenue) for the first quarter 2014, versus $86.5 million (3.8% of revenue) for
the corresponding 2013 period. The increase in absolute dollars and increase as
a percentage of revenue was primarily attributable to the reasons noted above.
See Operating Group Results below for further discussion.
Interest Expense and Interest Income-Interest expense was $18.9 million for the
first quarter 2014, compared with $22.7 million for the corresponding 2013
period. Our first quarter 2014 and 2013 periods both included a full quarter of
financing costs associated with the 2013 Shaw Acquisition due to the timing of
obtaining our initial funding commitments. The decrease over the prior year
period was primarily attributable to the first quarter 2013 including interest
related to one-time commitments satisfied during the quarter associated with the
Shaw Acquisition (approximately $2.0 million) and the impact of our lower
outstanding debt balance in 2014, partly offset by the impact of an increase in
average revolving credit facility borrowings. Interest income was $2.1 million
for the first quarter 2014, compared with $1.9 million for the corresponding
2013 period.
Income Tax Expense-Income tax expense for the first quarter 2014 was $42.9
million (29.5% of pre-tax income), compared with $22.8 million (34.7% of pre-tax
income) for the corresponding 2013 period. Our 2014 tax rate benefited from
increases in our estimated available tax credits (approximately 2.5%). Our 2013
tax rate was impacted by approximately 3.0% due to the non-deductible nature of
certain Shaw Acquisition-related costs. Our tax rate may continue to experience
fluctuations due primarily to changes in the geographic distribution of our
pre-tax income.
Net Income Attributable to Noncontrolling Interests-Noncontrolling interests are
primarily associated with our large LNG mechanical erection and gas processing
projects in the Asia Pacific region and certain operations in the U.S. and
Middle East. Net income attributable to noncontrolling interests was $13.8
million for the first quarter 2014, compared to $9.3 million for the
corresponding 2013 period. The change compared to the 2013 period was
commensurate with the level of applicable operating results for the
aforementioned projects and operations.
Operating Group Results
Engineering, Construction and Maintenance
New Awards-New awards were $4.9 billion for the first quarter 2014, compared
with $1.0 billion for the corresponding 2013 period. Significant new awards for
the first quarter 2014 included our proportionate share of a $6.2 billion LNG
export facility award in the U.S. (approximately $3.1 billion), a structural,
mechanical and piping construction award for an LNG project in the Asia Pacific
Region (approximately $625.0 million), engineering and procurement for a clean
fuels project in the Middle East (approximately $370.0 million), nuclear
facility modification work in the U.S. (approximately $120.0 million),

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engineering and project management services for a pipeline expansion project in
the Middle East (approximately $85.0 million), a front-end engineering award for
a plastics project in the Middle East (approximately $40.0 million) and scope
increases on existing backlog. Significant new awards for the first quarter 2013
included an extended commitment on an existing nuclear maintenance contract
(approximately $445.0 million), engineering services for an offshore LNG
platform in the Norwegian Sea (approximately $180.0 million) and scope increases
on our refinery project in Colombia (approximately $175.0 million).
Revenue-Revenue was $2.0 billion for the first quarter 2014, representing an
increase of $468.9 million (31%), compared with the corresponding 2013 period.
Our 2014 results primarily benefited from net increased revenue on our large
cost reimbursable LNG mechanical erection and gas processing projects in the
Asia Pacific region and refinery project in Colombia (approximately $150.0
million combined) and the full quarter impact of the acquired Shaw operations
(approximately $345.0 million). Approximately $700.0 million of the operating
group's first quarter 2014 revenue was from our large cost reimbursable
projects, compared with $550.0 million for the corresponding 2013 period.
Approximately $320.0 million of the operating group's first quarter 2014 revenue
was attributable to our nuclear projects in Georgia and South Carolina, compared
with $122.0 million for the corresponding 2013 period.
Income from Operations-Income from operations for the first quarter 2014 was
$88.8 million (4.5% of revenue), compared with $66.5 million (4.4% of revenue)
for the corresponding 2013 period. Our 2014 results benefited from our higher
revenue volume and leverage of operating costs, offset partially by the full
quarter impact of the acquired Shaw operations at relatively lower margin
levels.
Fabrication Services
New Awards-New awards were $494.0 million for the first quarter 2014, compared
with $707.7 million for the corresponding 2013 period. Significant new awards
for the first quarter 2014 included a pipe fabrication award for a propane
dehydrogenation unit in the U.S. (approximately $100.0 million) and various
other storage tank and fabrication awards for new and existing projects
throughout the world. Significant new awards during the first quarter 2013
included LNG storage tanks and facilities for two projects in the Asia Pacific
region (approximately $180.0 million and $80.0 million) and ethane storage tanks
in the U.S. (approximately $110.0 million).
Revenue-Revenue was $630.4 million for the first quarter 2014, representing an
increase of $135.4 million (27%), compared with the corresponding 2013 period.
The increase over the prior year period was primarily attributable to the full
quarter impact of the acquired Shaw operations (approximately $85.0 million).
Income from Operations-Income from operations for the first quarter 2014 was
$40.4 million (6.4% of revenue), compared with $45.0 million (9.1% of revenue)
for the corresponding 2013 period. Our first quarter 2014 results benefited from
our higher revenue volume, but were impacted by a temporary underutilization of
our pipe fabrication capacity due to customer delays (approximately $17.0
million). The first quarter 2013 period benefited from savings on storage tank
projects in the Caribbean and South America (approximately $9.0 million).
Technology
New Awards-New awards were $100.2 million for the first quarter 2014, compared
with $152.7 million for the corresponding 2013 period. The decrease was
primarily due to higher heat transfer awards in the prior year period.
Revenue-Revenue was $144.1 million for the first quarter 2014, representing a
decrease of $7.4 million (5%), compared with the corresponding 2013 period. The
decrease was primarily due to a higher volume of heat transfer activity in the
prior year period, partly offset by increased catalyst activity in the current
quarter.
Income from Operations-Income from operations for the first quarter 2014 was
$41.2 million (28.6% of revenue), versus $35.5 million (23.5% of revenue) for
the corresponding 2013 period. The increase in absolute dollars and increase as
a percentage of revenue was primarily due to a higher margin mix of work in the
2014 quarter for each of our licensing, heat transfer and catalyst activities,
as compared to the corresponding 2013 period.
Environmental Solutions
New Awards-New awards were $279.0 million for the first quarter 2014, compared
with $85.0 million for the corresponding 2013 period. Significant new awards for
the first quarter 2014 included an environmental monitoring award in the U.S.
(approximately $60.0 million) and a nuclear decommissioning and dismantlement
award in the U.S. (approximately $35.0 million).
Revenue-Revenue was $184.9 million for the first quarter 2014, representing an
increase of $79.8 million (76%), compared with the corresponding 2013 period.
The increase over the prior year period was primarily attributable to the
current period having a full quarter of operations.

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Income from Operations-Income from operations for the first quarter 2014 was
$0.2 million (0.1% of revenue), versus $0.7 million (0.6% of revenue) for the
corresponding 2013 period. Our 2014 quarter results benefited from our higher
revenue volume, but was offset by a lower margin mix of work. Our results
continue to be impacted by ongoing uncertainty with respect to Federal
government funding and prioritization.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents-At March 31, 2014, our cash and cash equivalents were
$420.2 million, and were maintained in local accounts throughout the world,
substantially all of which was maintained outside The Netherlands, our country
of domicile. With the exception of $170.5 million of cash and cash equivalents
within our variable interest entities ("VIEs") associated with our partnering
arrangements, which is generally only available for use in our operating
activities when distributed to the partners, we are not aware of any material
restrictions on our cash and cash equivalents.
With respect to tax consequences of repatriating our foreign earnings,
distributions from our European Union subsidiaries to their Netherlands parent
companies are not subject to taxation. Further, for our non-European Union
companies and their subsidiaries and our U.S. companies, to the extent taxes
apply, the amount of permanently reinvested earnings becomes taxable upon
repatriation of assets from the subsidiary or liquidation of the subsidiary. We
have accrued taxes on undistributed earnings that we intend to repatriate and we
intend to permanently reinvest the remaining undistributed earnings in their
respective businesses and, accordingly, have accrued no taxes on such amounts.
Operating Activities-During the first three months of 2014, net cash used in
operating activities was $145.8 million, primarily resulting from cash generated
from earnings, offset by the net change in our accounts receivable, inventory,
accounts payable and net contracts in progress account balances (collectively
"Contract Capital") ($300.5 million combined). Our Contract Capital balances
fluctuate based on the size of our projects and changing mix of
cost-reimbursable versus fixed-price backlog. Our cost-reimbursable projects
tend to have a greater working capital requirement, while our fixed-price
projects are generally structured to be cash flow positive, creating negative
net contracts in progress balances that are subject to fluctuation and which are
particularly impacted by the timing of new awards and related up-front payments,
. . .